RWA involves the public issuance of tokens for financing, which is illegal in mainland China?

With the continuous maturation of blockchain technology, the tokenization of Real World Assets (RWA) has become a key bridge connecting TradFi and digital finance, with institutions like Boston Consulting Group (BCG) predicting it will form a massive market of up to $16 trillion by 2030. From Wall Street giant BlackRock issuing tokenized funds to the actively promoted “Ensemble Project Sandbox” in Hong Kong, the global practice of RWA is thriving. However, when we turn our attention to mainland China, we find a starkly different picture. A core question emerges: Is the RWA model involving the public issuance of tokens for financing considered illegal in mainland China?

The answer is clear: Yes, in mainland China, any RWA model involving the issuance of tokens to the public and fundraising is strictly prohibited by current regulations. This is not a baseless inference, but rather based on the consistent prudent stance of Chinese regulatory authorities and explicit legal documents.

regulatory red line

To understand the attitude of the mainland towards RWA financing, one must trace back to September 4, 2017, when the People's Bank of China and six other ministries jointly issued the “Notice on Preventing the Risks of Token Issuance and Financing.” This notice clearly classified Initial Coin Offerings (ICOs) as “an unapproved illegal public financing activity” and explicitly prohibited any organization or individual from engaging in token issuance financing activities.

The third path of RWA, namely “financing/revenue-type RWA”, essentially involves raising funds from investors by issuing tokens that represent the rights to the asset's income or ownership. This model, especially when aimed at an unspecified public, has an economic essence that is highly similar to ICOs. Therefore, it directly touches upon the regulatory red line defined in the aforementioned announcement.

In mainland China, any RWA model involving the public issuance of financing Tokens is illegal. Blockchain practices in the mainland mainly focus on the exploration of “non-coin blockchain”, which utilizes blockchain technology to transform business processes, such as improving supply chain financial efficiency and achieving data asset confirmation, while strictly avoiding the public issuance of financing Tokens.

The prudence of mainland regulatory agencies is not without reason. Although RWA has a broad prospect, it hides profound legal, technical, and market risks behind it, which are core factors that regulatory agencies must consider when formulating policies.

The Conflict Between Law and Reality: The Disillusionment of “Code is Law” The core challenge of RWA lies in the fact that on-chain smart contract records do not equate to legal protections in the real world; the law is always the ultimate authority. When on-chain records indicate that you hold partial rights to an asset, but the off-chain government registration agency or legal framework does not recognize it, the tokens in your hands may become “digital certificates” that cannot be enforced legally. This mixed model of “on-chain confirmation and off-chain confirmation” is prevalent even in markets like the United States, where on-chain records often serve merely as “auxiliary records,” and ultimate ownership still relies on the records of traditional registration and transfer agents.

Vulnerability of asset anchoring: RWA ≠ real assets The RWA tokens held by investors are essentially “digital mirrors” or derivatives of the underlying assets, rather than the assets themselves. Taking tokenized gold PAXG as an example, its price has experienced serious decoupling from the spot gold price in extreme market conditions, plummeting by 22% or trading at a premium of up to 10%. This reveals several inherent risks of RWA: Liquidity Risk: The depth of the cryptocurrency market is far inferior to that of the traditional market. During times of panic, market makers may be unable to provide sufficient liquidity, leading to severe price volatility. Mismatch in Trading Hours: The cryptocurrency market trades 24/7, while RWA-backed traditional assets (such as gold and stocks) have market closure times. During the closure of the traditional market, the price discovery mechanism for RWA tokens fails, making it more susceptible to speculative behavior. Counterparty Risk: The structure of RWA relies on the credibility of custodians, auditors, and legal entities (such as SPVs). Any failure or fraud in a centralized link can lead to a decoupling of the token's value from the underlying asset.

It is precisely based on a profound understanding of these systemic risks that the mainland regulators chose to cut off the public financing channels that could lead to financial instability at the source.

One country, two systems

Since direct RWA financing in the mainland is not feasible, is there an alternative solution? The answer points to Hong Kong. As an international financial center, Hong Kong adopts the principle of “same business, same risk, same regulation” for RWA, providing a regulated “sandbox” for RWA innovation under the existing securities regulatory framework.

A more mature compliance path has emerged: using mainland assets (such as new energy charging piles and accounts receivable) as underlying assets to privately issue RWA products in Hong Kong aimed at “professional investors.” The process is extremely complex and must take into account the regulations of both regions: Compliance in the Mainland: First, a legal due diligence on assets must be completed in the mainland to ensure clear ownership and no judicial freeze. Then, a Special Purpose Vehicle (SPV) is typically established in the Free Trade Zone, and the overseas investment filing with the Ministry of Commerce and the National Development and Reform Commission is completed. Cross-border transfer: Funds or asset rights are compliantly transferred abroad through Qualified Domestic Institutional Investor (QDII) channels or methods such as “internal guarantee external loan”. Establishment in Hong Kong: An issuing entity is set up in Hong Kong, and a financial institution holding the relevant licenses (such as Class 1, 4, and 9 licenses) is engaged for cooperation. Issuance documents are submitted to the Securities and Futures Commission (SFC) of Hong Kong, and strict compliance with information disclosure and investor access regulations is observed.

For example, Langxin Group cooperated with Ant Group to successfully complete its first RWA financing in Hong Kong by utilizing the aforementioned path for its operated charging pile assets. This process precisely proves that operations cannot be conducted directly in the mainland and must rely on the unique position of Hong Kong as a “super connector.”

However, even the attempts in Hong Kong are not without concerns. Recent reports indicate that mainland regulatory authorities, out of prudent considerations, have guided some Chinese financial institutions to temporarily pause or withdraw from their RWA and stablecoin businesses in Hong Kong. This indicates that the mainland regulators' concerns about risks have extended to the relevant businesses of Chinese institutions abroad, demonstrating their firm determination to maintain financial stability.

Feasible exploration

Prohibiting public financing, does it mean that RWA has no place in the mainland? Not necessarily. After stripping away the financing attributes, RWA technology still holds great value in the areas of “rights confirmation and evidence storage” and “payment settlement,” which is also the mainstream direction currently being explored in the mainland.

Path One: Rights Confirmation/Certification Type RWA (No Token Issuance): This is the lowest risk and most encouraged model. Enterprises utilize the immutability of Blockchain to record asset operational data (such as photovoltaic generation), ownership status, etc., on-chain for certification. This can effectively enhance supply chain transparency, prevent fraud such as double pledging, and provide a credible basis for credit for banks and other financial institutions, thereby indirectly solving the financing difficulties.

Path 2: Payment/Store-of-value type RWA (Issuing tokens but not involving securities): This path is mainly used to improve payment efficiency, such as using stablecoins for cross-border settlement. Although it does not involve securities issuance, it will still fall under the regulatory scope of payment and currency management, which is also subject to strict control.

Conclusion

In summary, the answer to the question “Does RWA involve public issuance of tokens for financing, and is it illegal in mainland China?” is affirmative. Mainland China has drawn an insurmountable red line for token financing through the 2017 “Announcement,” prioritizing financial stability and risk prevention. The inherent risks of RWA, particularly the disconnection between its legal and real aspects, as well as the fragility of asset anchoring, further reinforce the rationale behind this regulatory logic.

In the future, the evolution of RWA in China will present a clear dual-track pattern: the mainland will focus on leveraging Blockchain technology to empower the real economy, delving deeply into non-financing areas such as “rights confirmation and storage,” addressing the pain points of trust and efficiency in business processes; whereas explorations involving financing will continue to take place through Hong Kong, this unique window, conducting small-scale, prudent attempts within a strict compliance framework using complex and high-cost cross-border structures. For any company wishing to venture into the RWA space, the primary question is no longer “Can we tokenize it?” but rather “Can the structure we build survive under legal and regulatory scrutiny?”